Market Overview

Microsoft Pumps $300 Million into Barnes & Noble


Leave it up to Microsoft (NASDAQ: MSFT) to help kick off the week with an interesting story. The computer giant is making a significant $300 million investment in Barnes & Noble's (NYSE: BKS) digital-book business and college texts units. It's a fascinating move that helps value the Nook business, but also provides some direction about MSFT's ambitions for the year.

That investment will give Microsoft a 17.6% stake in a new "Nook" subsidiary that will, in turn, value it at $1.7 billion. Compare that to BKS's current valuation of roughly $791 million, and it seems obvious that BKS's digital business could soon be separated from its retail business.

Eyebrows were raised when Barnes & Noble made a move into the digital market with the Nook but, with the subsequent demise of Borders highlighting the problems facing the chain book store industry, the maneuver has proven to be inspired. Many times, companies like Kodak and Radio Shack (NYSE: RSH) are accused of not having the ability to roll with technology. When a company likes BKS succeeds doing exactly that, it should be heavily commended.

In fiscal terms, Microsoft just did exactly that.

The investment comes with a clause that will mean a Nook application will be included in the new Windows 8, which will be previewed in June. That will be followed later in the year by computers and tablets on sale featuring Windows 8.

But the alliance will confuse some, especially after the two companies were at loggerheads last year when MSFT sued BKS, saying that the Nook infringed on patents. In turn, BKS said that Microsoft was trying to bully smaller companies that were using Google's (NASDAQ: GOOG) Android operating system, as the Nook currently does.

If you can't beat 'em, join 'em, right? This new alliance sees the patent litigation settled. Barnes & Noble is looking into spinoff options for the Nook business, though it has quietly said that such a move may never come off. However, no matter how the business is structured, this massive cash injection from Microsoft will see BKS have more access to international markets. It seems as if everyone's a winner.

"Microsoft's investment in, and our exciting collaboration to bring world-class digital reading technologies and content to the Windows platform … will allow us to significantly expand the business," Barnes & Noble Chief Executive William Lynch said in a statement.

Following the news, BKS shares shot up and, at the time of writing, are up 5.23%.

Follow me @BCallwood.

Posted-In: News Contracts Retail Sales Tech


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